Oil prices seen staying low

December 16, 2008|By New York Times News Service

With the global economy in the throes of a recession, oil producers are facing their toughest business prospects in 25 years.

Oil demand is expected to decline this year and next, the first drop since the energy shocks of the early 1980s. As economic growth slows sharply, oil prices have collapsed from their summer peaks in record time.

The stunning speed of the downturn has made for a nightmare for producers, who face shrinking revenue next year. Oil has lost $100 a barrel, or 70 percent of its value, since July. Many analysts forecast further declines as the global economy worsens.

OPEC is meeting tomorrow in the coastal city of Oran, Algeria, to discuss ways to stem the drop in prices. Chakib Khelil, the organization's president and Algeria's oil minister, suggested last week that producers would approve "a severe production cut to stabilize the oil market."

Many analysts expect the Organization of the Petroleum Exporting Countries, which accounts for about 40 percent of the world's oil, to cut oil production by about 1.5 million barrels a day, or 5 percent.

In recent days, calls for a sizable cut have been mounting. Iran would like OPEC to reduce its output by an additional 2 million barrels a day, according to the country's oil minister.

Russia, which is not part of OPEC, is also sending a large delegation to Algeria and could join the oil cartel in reducing its production.

The problem is that OPEC's actions so far have had little impact on the market. OPEC members have already met three times since September and agreed to trim their output by 2 million barrels a day.

But prices have continued to fall. The price of oil has dropped by 30 percent since October, the last time OPEC promised to cut production. With demand falling rapidly, there are few reasons to expect the drop to slow down.